Two Very Different Takes

Ajay Shah had what I thought was a pretty good piece in the Business Standard the other day (h/t Murali Neelakantan). While the headline of the piece was “Price controls for vaccines?1, it was essentially about the best way to ensure delivery of the vaccine to every nook and cranny of India.

The great Indian vaccination story has begun. Private health care firms will be required for reaching the masses. A basic tenet of economic policy is that price controls work poorly. If price limits are brought in, this will limit private outreach to cities.

And to make his point, he used the example of demat securities settlement.2

In the event, non-interference prevailed: The price charged by DPs was left to market prices. Competition developed, and the prices charged to customers crashed. Competition ate away the profit rate in the easy urban sites and DPs got the incentive to go forth into the great Indian hinterland, looking for more business. This generated outreach.

Ajay Shah makes the point that this is how markets can work when allowed to, and uses this analogy to make the argument that governments should not cap the prices of vaccines (and their delivery).

So far, from an economists point of view, so good. Markets work when allowed to, and all is well with the world. But Gulzar Natarajan has a different point of view:

This is deceptive and an extremely misleading story. In fact it is shocking that this comparison could even be made. As I shall explain in brief, this extrapolation from the world of demat shares settlement to that of administration of vaccines is all logic with little understanding of the differences between the respective markets.

He raises the following points:

  1. The tendency of those in rural areas to defer medical visits because of poverty/affordability concerns
  2. Share markets are about the luxury of choice. Vaccination isn’t.
  3. Vaccinations lead to large positive externalities3
  4. Market allocation in the face of deep inequality is problematic
  5. Private health clinics may not follow all follow-up protocols.4
  6. Effective markets need strong state capacity. Without it, price gouging, sub-standard medical equipment, fake vaccines are all more than possible.

Read the whole post, please, as usual. Towards the end, he makes the point that it is not about one or the other:

None of this is to say private market should not be part of the vaccine drive. A low enough price should be fixed and vaccines administered privately too. But coverage of the vast majority of Indians in remote and rural areas will have to be through the public system, as has always been the case with all other vaccines.

None of this is meant to be a criticism of either Ajay Shah or Gulzar Natarajan, of course. The point of this post, instead, is to show you three things:

  1. “How might the author be wrong?” is a useful way to read everything.5
  2. The truth lies somewhere in the middle is a thumb-rule that fits almost everything. Especially Indian things. While there are disagreements that I have with Gulzar Natarajan’s piece, he is making the point that ignoring government (or public) delivery of vaccines is fraught with risk – and I agree.
  3. The guy who writes these posts (me, that is) himself didn’t focus enough on pts. 1 and 2 when reading Ajay Shah’s op-ed. Note to self: work harder!
  1. This will be behind a paywall, sorry[]
  2. Don’t worry if you don’t know what this means. Run a simple Google search and plunge right in to the first three articles. You’ll get a reasonably clear idea.[]
  3. I’m quoting him, ok?![]
  4. Of course, neither may public hospitals![]
  5. It’s also a useful way to attend classes[]

Understanding fiscal deficits

Fiscal deficit is a phrase that is bandied about every year, but not very well understood – both in terms of how to arrive at it, but also in terms of what it means.

In the first part of today’s post, I’ll explain how to arrive at it. In the second part, I’ll rely on a couple of lines from an excellent article written by Rathin Roy a while ago.

I work at the Gokhale Institute of Politics and Economics, Pune. This means that while I continue to be employed at the Institute, a salary will be credited into my bank account every month. I can also choose to augment my income by, say, breaking a fixed deposit, or by taking a loan. The first part is my “recurring” income, while the latter is a one-time income.

I stay in a rented accommodation. This means I have to pay rent every month. I also have to buy groceries, pay for utilities, and pay the salaries of everybody who works at my household. But also, every now and then, I can, say, buy a car. Or a laptop. Or a house. These are not monthly expenses – at least not in my household they aren’t! The first set of expenses are “recurring” expenses, while the latter are one-time expenses.

Taken together, what matters in my household is that I must be able to arrange for ways to meet my monthly expenses. Let’s write down some very simple numbers:

  1. Assume that my recurring expenses are one lakh rupees – one hundred thousand INR. (Groceries, rent, salaries, petrol, eating out etc etc)
  2. Assume that for the month of March, my capital expenses are also one lakh rupees. (Maybe I’ve chosen to buy the latest M1 Macbook. One can dream.)
  3. So, my expenses, all told, are two lakh rupees for the month of March 2021.
  4. Assume that Gokhale pays me seventy thousand rupees as my salary. Assume that I augment this income by teaching courses in a couple of other colleges. Let’s assume that I earn one lakh rupees through this recurring income (salary plus visiting faculty income is one lakh per month)
  5. I have no other sources of income. So: 1+2 are my total expenses, against which my total income is 1 lakh rupees (4).
  6. Let’s say I am unwilling to break into any of my savings to purchase this laptop, and choose to borrow the amount instead. That is, no capital income, only borrowing.

So, in essence, the amount that I need to borrow after all possible sources of income have been thought of, in order to meet my total expenses…

That borrowing is my “fiscal deficit” for the month of March 2021.

Homework: to check if you have understood this, try reading the budget at a glance document, and see if you get how Nirmala Sitharaman and team arrived at the fiscal deficit for the government. Page 3 in the PDF.*

OK, so now we know what the fiscal deficit is, and how to go about arriving at it. But is a high fiscal deficit a good thing or a bad thing, and how does one decide?

Well, it depends on what you are borrowing for! For example, as I often say when I am talking to students, they are and should be running a fiscal deficit in their own, personal lives. They’re spending money (rent, food, movies, college fees) but not earning anything at the moment. The idea is that this money is being spent in order to acquire skills that enable them to earn much more in the future. Much more, in fact, than they spend on acquiring that education – or that, at any rate, is the plan.

But what if they instead spend an equivalent amount of money, but not to acquire an education. They spend this money, instead, on buying a Honda Gold Wing. (Yes, I know education isn’t quite that expensive just yet.)

That would be problematic, because you are taking on debt, but for acquiring a depreciating asset (a bike that gets worse over time) and not an appreciating one (your education and your years of experience get more valuable over time).

Or as Rathin Roy put it in a recent Business Standard column:

If the government is merely borrowing to fund consumption expenditure then this is difficult to justify.

and a little while later, in the same piece…

For example, the “golden rule,” which states that governments must finance consumption expenditure out of revenue receipts and borrow only for investment.

There is much, much more to take away from Rathin Roy’s piece, of course (and I’ll write a follow-up piece later this week) – but as a first step towards understanding fiscal deficits, this is more than enough.

*If, for whatever reason, the budget at a glance document is not clear, let me know in the comments below. If more than ten people are interested, happy to arrange a quick video call about it (because, you know, there have been so few of ’em this past year!)

India, Bangladesh, GDP. Sigh.

When I explain GDP to folks unfamiliar with the concept, I often use the analogy of marks.

“Do you”, I intone in the most professorial voice I can muster, “remember how many marks you scored in your math exam when you were in the 4th grade?”

The point behind asking that question is to help the class realize that there were many other things going on in their life in the 4th grade. The measurement of how well you did on the specific questions you were asked in that test on that day do very little to show you how much math you actually learnt that year. Leave alone, of course, the question of how little the math test had to do with all of what you learnt while you were in the 4th grade.

A similar point was made about GDP recently, in the Business Standard:

Take GDP first. In India, we don’t measure the output of 65 per cent of the economy and make only well-informed guesses about the remaining 35 per cent.

That’s exactly right, of course. You shouldn’t obsess over GDP numbers, much like you shouldn’t obsess over grades. But we do obsess over both!

And the analogy between marks and GDP works really well especially now, because when it comes to GDP, we now have a Sharmaji ka beta in the neighbourhood.

Hello, Bangladesh.

About two years ago, India’s Home Minister Amit Shah spoke of “infiltrators” who were hollowing out the country “like termites”. A Minister from Bangladesh retorted that Shah’s statement was “inappropriate”, “unwanted”, and “not based on information”. The IMF’s recent per capita GDP projections for South Asian countries show that the alleged ‘termite factory’ is shining — Bangladesh, which has been doing better than both India and Pakistan on social and human development indicators for several years now, is also beginning to march ahead on the economic front.

In much the same way that you shouldn’t compare marks obtained by students, you really shouldn’t compare GDP per capita between nations.

But (and you knew there was a but coming along, didn’t you), as I also say in my classes – what else you got, eh? It’s all well and good to say we shouldn’t, but it’s not like we have readymade alternatives. And if you take the GDP factory away from us economists, how do we fill our days?

TCA Srinavasa-Raghavan, in the same column cited above, has three answers:

Only three things: Food inflation, because it has a direct bearing on welfare; foreign exchange reserves, because they serve as a powerful signalling device to foreign investors and sellers of goods; and the revenue deficit. These are the only things the Centre has total control over. In determining all other indicators, the states play a big role.

Read the whole article (which, I’m sorry, may well be behind a paywall). I don’t necessarily agree with all of it, about which more below, but the point that GDP is overrated as a useful barometer for the state of the economy is a point I agree with wholeheartedly.

TCA’s suggestions about what is to be used instead (food inflation, the revenue deficit and forex reserves) are worth considering, but there is a long list of alternatives that have been suggested. Here is just one example:

Provincial officials have long been suspected of overstating growth. Adding their figures together suggests that China’s economy was $364 billion bigger in 2009 than the total in the national accounts. Mr Li preferred to track Liaoning’s economy by looking at other indicators: the cargo volume on the province’s railways, electricity consumption and loans disbursed by banks.

Other folks may come up with other things to use as a proxy for measuring the state of the economy, but really, it is the old story of the six blind men and the elephant all over again. Whatever you use will give you only a limited picture. That’s just the nature of the beast.

Worse! Whatever you agree to measure instead of GDP immediately becomes susceptible to Goodhart’s Law:

In a paper published in 1997, Anthropologist Marilyn Strathern generalized Goodhart’s law beyond statistics and control to evaluation more broadly. The phrase commonly referred to as Goodhart’s law comes from Strathern’s paper, not from any of Goodhart’s writings:

When a measure becomes a target, it ceases to be a good measure.

(Emphasis added)

So sure, you could ask that food inflation, revenue deficits and forex reserves be the target. But it’ll just be cobras or rat tails all over again.

So GDP, whether you like it or not, whether its measurement is favorable or not, is not going to go away anytime soon, whether in India or elsewhere.

Consider the concluding paragraph from a column in the Livemint yesterday by R Jagannathan:

This does not make GDP calculations worthless, but the real focus should be on sectors. More than macroeconomics, sectoral understanding and microeconomics ought to be central to policy-making. Future GDP will best be estimated as a sum of its parts, and not as a whole extrapolated from numbers in the more visible parts of the economy.

Yes, well, sure. Absolutely.

Now if only we could figure out the how.

Five articles for 10th July, 2020

  1. “A moment later, the soft in-out of normal respiration, which I’ve listened to my whole life (mostly without being aware of it, thank God), has been replaced by an unpleasant shloop-shloop-shloop sound. The air I’m taking in is very cold, but it’s air, at least, and I keep breathing it. I don’t want to die, and, as I lie in the helicopter looking out at the bright summer sky, I realize that I am actually lying in death’s doorway. Someone is going to pull me one way or the other pretty soon; it’s mostly out of my hands. All I can do is lie there and listen to my thin, leaky breathing: shloop-shloop-shloop.”
    Stephen King on his accident from 1999, and getting back to writing. ‘Nuff said.
  2. “Rather than outright ranking the movies, which would be a truly impossible task, I thought I’d put together a guide that would hopefully help people getting into Ghibli for the first time. This is obviously very subjective, and even then I’m not necessarily putting my favorites toward the top of the list; this is about easing you into the studio’s work and making sure you don’t write it all off after accidentally watching Tales from Earthsea.”
    Dear reader: if you haven’t experienced (“watched” is a poor word in this context) Studio Ghibli movies, read this article, and then write off the next four or five evenings. At least. And I envy you your discovery!
  3. “Tetlock established a precise measurement system to track political forecasts made by experts to gauge their accuracy. After twenty years he published the results. The average expert was no more accurate than the proverbial dart-throwing chimp on many questions. Few could beat simple rules like ‘always predict no change’.”
    A short, but well written summary/review of Superforecasters. Read the book too!
  4. You may have noticed – but then again, you may have not (and who can blame you), but my sentences tend to be complicated, and full of em dashes. Well, so what of it?
  5. “Low capital cost is why cloud kitchens with curious names (Bhookemon, for one) are quickly scaling up to deliver the same menu at different pin codes with consistency. Apart from low rentals, the sourcing of ingredients is centralised, the R&D happens at a base kitchen and once a recipe is finalised, it can be easily replicated at different locations.”
    On the emergence of cloud kitchens in India, and what this might look like a year or so down the line.

Notes on “Re-aligning global value chains” Part II

Yesterday, we took a look at how China makes it difficult for supply chains to move away from that country. That happens through a combination of mind-boggling scale and efficiency, coupled with astute moves up the ladder in terms of no longer dealing with just cheap manufacturing. Think robotics, app development, advanced and skilled manufacturing units. After that, the gravity model takes over, and well, good luck moving out of China.

Today, we ask the following question: let’s assume that all that is somehow put to the side, and a country is looking to move out of China. What are the chances this firm will come to India?

Again, we’ll use Gulzar Natarajan’s excellent article as the basis of our discussion, and foray into other parts of the internet. Let’s begin:

First, a quote from within Gulzar Natarajan’s post:

“Nomura Group Study found that in 2019, out of the fifty-six companies which shifted their production out of China, only three of these invested in India; while 26 went to Vietnam, 11 to Taiwan, and 08 to Thailand. In April 2020, Nikkei noted that out of the 1,000 firms which were planning to leave China and invest in Asian countries, only 300 of them were seriously thinking of investing in India.”

300 out of 1000 isn’t great, you might think, but it’s not bad, surely. Well, read again: it’s “seriously thinking”, not actually relocated. If you want to take a look at action, not thoughts, it is 3 out of 56. About 5%.


Let’s begin with this tweet:

And here’s (to my mind) the most interesting quote from within the editorial:

“The situation is far worse when it comes to comparisons with China in the EoDB. It takes double the time to start a business in India as compared to China, around six times as much to register property and double the time—and also in terms of the value of the contract—to enforce a contract. And, this is without even looking at the policy flip-flops that this newspaper catalogues diligently.”

The real measure of success when it comes to the Ease of Doing Business ranking is not how far we’ve come, but far we have to go. And it’s going to be a long haul.

This article, which I got from reading Gulzar Natarajan’s post, is instructive in this regard.

Sample this:

““Navigating labour laws is a total mine-field because interpretation is left to the courts and the officers and can be done in more than one way and removing an incompetent worker is not easy,” Gopal said. “I can get a divorce faster than removing a factory worker for non-performance.” In Karnataka, an employer would have to give three warning letters, a show-cause notice, have two inquiries — one external and one internal, and then terminate an employee only if the charges are proved to be serious. “Theft is considered serious but if an employee is lazy and doesn’t perform, that may not be taken as serious,” Gopal says. “In one’s own company, one cannot hire and fire.””

This article is just about furniture, but there are similar problems in every single sector in India.

To which, usually, there are two responses:

  1. Yes, but we have to start somewhere, don’t we?
  2. Yes, but we’re so much better than we were before!

Yes, sure, in response to both of these statements. But keep in mind that firms who are looking to move here are not going to ask if we’re better than we were before. They’re going to ask if we’re better than our competition today. Are we better than Vietnam, for example? What about Bangladesh? And if the answer is no, why should firms come here?

For our domestic market isn’t (yet) a good enough answer, unfortunately.

Our domestic consumption wasn’t large enough or lucrative enough for firms to locate themselves here before the pandemic – it’s obviously reduced since then.

And bureaucracy (not to mention bureaucracy-speak!) has gone up:

“On Sunday, for instance, the home ministry issued a clarification intended perhaps to limit the numbers of those who would be allowed to travel to their villages to a category called ‘genuine’ stranded migrants. The letter from the Centre to chief secretaries in the state administrations reads: “The facilitation envisaged in the aforesaid orders is meant for such distressed persons, but does not extend to those categories of persons, who are otherwise residing normally at places, other than the native places for purposes of work, etc. and who wish to visit their native places in normal course.”

I think I am reasonably good at English, but I still don’t know what this means. Even if I were to understand it, I do not know how I would go about implementing it! And that’s me, a guy who teaches using the English language for a living, and writes a blog in the English language. What chance does a manufacturer have? What chance does a non-Indian manufacturer have?

Government, in plain simple terms, has to get out of the way. Unfortunately, we seem to be heading in the opposite direction.

R Jagannathan writes in the Livemint:

“Companies compete, while governments can only enable. Governments cannot create global champions, though mercantilist countries like Japan, South Korea and China did do so at one point. What governments can do is create an enabling policy and regulatory environment that fosters economic growth and lets companies scale up. Airtel and Reliance Jio did not emerge as India’s two big telecom survivors because the government anointed them as winners. Nor did TCS, Infosys and Wipro become global outsourcing giants because of the government. They became global biggies because the policy environment for their growth was positive both in India and abroad.”

I might wish to disagree with parts of that excerpt (Studwell alert!), but I am in complete agreement with the broad message:

“The government holds the lock but not the keys to Atmanirbhar Bharat. As long as the lock is well oiled, companies will find the keys on their own.”

As of now, though, the lock is far too rusty, far too old and far too much like a pre-1991 model.

Financing the stimulus #1

Devesh Kapur and Arvind Subramanian, writing in the Business Standard:

In principle, there are five ways of financing additional expenditures over the next 12 months or so:

  • Reduction in other expenditures (Rs 1-1.5 trillion)
  • Foreign borrowing, from official sources and non-resident Indians (NRIs; Rs 1-1.5 trillion)
  • Public financing by issuing g-secs (including to banks and LIC) (Rs 5 trillion)
  • Monetary financing or “printing money” (Rs 1-1.5 trillion)
  • Mobilizing additional resources via raising taxes and cutting subsidies (Rs 1-1.5 trillion)

The rest of the article explains their rationale behind each point above. Essential reading!

Five articles from economists about tackling the crisis

  1. Arnold Kling advises us to not worry about “going back to normal”. It’s about winning the war, no matter what it takes. There will be a new normal at the end of it, and no one today knows what that normal will be like. Focus on winning!

    “We are acting as if our biggest worry is how to get back to our “normal,” pre-war economy. Our biggest challenge instead is to win the war, after which we will transition to an economy that looks considerably different, just as the post-WWII economy was quite different from the pre-war economy.”

  2. I found this fascinating: on how the RBI is working to keep our financial system alive.

    As the country goes on a self-imposed lockdown to fight the coronavirus contagion, a crack team of 150 people, in hazmat suits, is keeping India’s financial system up and running since March 19 from an unknown location in a completely quarantined environment. These 150 people, including 37 officials from critical departments of the Reserve Bank of India (RBI), such as debt management, reserve management and monetary operations, and third-party service providers, are now in charge of the business continuity plan of the central bank, designed in a way that could help create a benchmark for such exigencies in the future as well.

  3. Greg Mankiw comes up with a form of social insurance. Here’s a challenge for you – how would you game this system?

    Let’s send every person a check for X dollars every month for the next N months. In addition, levy a surtax in 2020–due in April 2021 or perhaps spread over several years–equal to N*X*(Y2020/Y2019), where Y2020 is a person’s earnings in 2020 and Y2019 is a person’s earnings in 2019. The surtax would be capped at N*X.

  4. Via MR, how about pausing time?

    Sometimes, the best solutions to big problems are very simple. Regarding the current outbreak of COVID-19, I propose a solution that—on the surface—might seem preposterous, but if one manages to stay with it and really think through the potential benefits, then it emerges as a much more credible course of action.I propose temporarily stopping time. This means that today’s date, Tuesday, March 17th, 2020, will remain the current date until further notice. This also means that everything that happens in time (e.g. mortgage due dates, payrolls, travel bookings, stock market trading, contractor gigs, concerts, sporting events) will be paused. It also means that all of these events remain on the books, and will continue as planned once time is resumed.


  5. And on the same point, Tim Taylor:

    “Here, I want to focus a bit on a theme that comes up in a number of the essays: the idea that sensible economic policy can put the economy in the freezer for a few months, and the pull the economy out of the freezer, thaw it out, and restart it. I find myself in the awkward position here of largely being in agreement with this policy as a short-run approach, and at the same time also feeling that the ultimate consequences of the policy are going to be more difficult than a number of authors are envisaging. ”

    (An aside: WordPress formatting has already cut years from my life, and will continue to do so. That last bit is, to be clear, an excerpt. That is clear to me, to you – but not to WordPress)

Econ101: Policy Responses to a Pandemic

If you haven’t played it already, go ahead and give this game a try: The Fed Chairman Game. I have a lot of fun playing this game in class, especially with students who have been taught monetary policy. It usually turns out to be the case that they haven’t understood it quite as well as they think the have! (To be clear, that’s the fault of our educational system, not the students.)

But the reason I started with that is because the game always throws up a scenario that mimics a crisis, and asks you what you would do if you were the Chair of the Fed.

In this case, policymakers the world over are now staring at a very real crisis, and they need to be asking themselves: what should we do?


There are two broad answers, of course: monetary policy, and fiscal policy.

The Federal Reserve has cut interest rates to zero, and while it has other tools to stimulate the economy, a crisis like this requires fiscal as well as monetary responses. The legislation passed thus far has been important, but another round of fiscal policy will be required immediately to fully address this crisis.

A robust fiscal response can provide income support to households, ensure broad and continuous access to safety net programs, provide incentives for employers to avoid layoffs, provide loans to small businesses, give liquidity cushions to households and firms, and otherwise stimulate the economy.

That’s a write-up from Brookings. The specifics follow in that article, but the article makes the point that more of the lifting will need to  be done by fiscal, rather than monetary policy. And that is true for a variety of reasons,  which the article does not get into, but long story short – fiscal, more than monetary.

But, ok, fiscal policy of what kind? Should we give money to firms or to workers? Here’s Paul Krugman with his take…

And here’s Alex Tabarrok with his response:

So what’s the correct answer? Well, as we’ve learnt before, and will learn again, macro is hard! In an ideal world, all of the above, but as is manifestly clear, we are not in an ideal world. If we must choose between giving money to firms or to people, to whom should we give it? My opinion? People first, businesses second. This is, of course, a US centric discussion, what’s up with India?


Here’s, to begin with, a round-up from around the world – you can search within it for India’s response thus far.

Calls are getting louder for governments to support people and businesses until the new coronavirus is contained. The only questions are how much money to shovel into the economy, how to go about doing it, and whether it will be enough.

Already, officials from Paris to Washington DC are pulling out the playbook used in Asia for slowing the spread of Covid-19: they’re restricting travel and cracking down on public gatherings. While those measures have the potential to reduce deaths and infections, they will also damage business prospects for many companies and cause a synchronized worldwide disruption.

Here’s the FT from two weeks ago about the impending slow down:

Venu Srinivasan, whose company TVS is one of India’s largest makers of motorcycles and scooters, said the business had lost about 10 per cent of production in February owing to a lack of Chinese-made parts for the vehicles’ fuel injection system. He added that TVS has now managed to find a new supplier.

But Mr Srinivasan said he was bracing for India’s recovery to take longer than anticipated. “One would have expected a V-shaped recovery, but instead you have an L shaped recovery,” he said. “It’s been the long haul.”

R Jagannathan in the LiveMint suggests this:

This is how it could be designed. Any unemployed urban youth in the 20-30 age group could be promised 100 days of employment and/or skilling options paid for by the government at a fixed daily rate of ₹300 (or thereabouts, depending on city). At an outlay of ₹30,000 per person annually, the unemployed can be put to work in municipal conservancy services, healthcare support, traffic management, and other duties, with the money also being made available for any skill-acquiring activity chosen by the beneficiary (driver training for Ola-Uber, logistics operations, etc). All companies could be given an opportunity to use the provisions of the Apprentices Act to take on more trainees, with the apprenticeship period subsidized to the limit of ₹30,000 per person in 2020-21. If the pilot works, it could be rolled out as a regular annual scheme for jobs and skills. Skilling works best in an actual jobs environment.


He also mentions making the GST simpler, which the Business Standard agrees with:

Certainly, the rationalisation of GST will also affect government revenues. However, a simpler and more transparent system would allow greater collection and reduce evasion. The government will receive a windfall this year from lower crude oil prices. The moment to move on the structural reform agenda is now. The GST Council has done well to address the inverted duty structure in mobile phones. Further rationalisation will give confidence to the market that the government is serious about reforms. It was promised that GST would remain a work in progress, and that the GST Council would act often to improve it. So far, however, the changes have been marginal and haphazard. A more structured and rational approach, which outlines a quick path to a single rate, would pay dividends for the economy in the longer run. It would also be an effective way to manage the immediate effects of a supply shock such as is being caused by the pandemic.

Also from the Business Standard, a report on the government now considering (not happened yet) relaxing bad loan classification rules for sectors hit by the corona virus. That’s pretty soon going to be every sector!


Assorted Links about the topic – there’s more to read than usual, please note.

Here is Tyler Cowen on mitigating the economic impacts from the coronavirus crisis.

Here’s Bill Dupor, via MR, about the topic:

First, incentivize behavior to align with recognized public health objectives during the outbreak.

Second, avoid concentrating the individual financial burden of the outbreak or the policy response to the outbreak.

Third, implement these fiscal policies as quickly as possible, subject to some efficiency considerations.

Again, via MR, New Zealand’s macro response.

Arnold Kling is running a series on the macro response to the crisis.

Claudia Sahm proposes direct payment to individuals:

This chapter proposes a direct payment to individuals that would
automatically be paid out early in a recession and then continue annually
when the recession is severe. Research shows that stimulus payments that
were broadly disbursed on an ad hoc (or discretionary) basis in the 2001 and
2008–9 recessions raised consumer spending and helped counteract weak
demand. Making the payments automatic by tying their disbursement to
recent changes in the unemployment rate would ensure that the stimulus
reaches the economy as quickly as possible. A rapid, vigorous response to
the next recession in the form of direct payments to individuals would help
limit employment losses and the economic damage from the recession.

Here are the concrete proposals, the entire paper is worth a read:

Automatic lump-sum stimulus payments would be made to individuals
when the three-month average national unemployment rate rises by
at least 0.50 percentage points relative to its low in the previous 12
• The total amount of stimulus payments in the first year is set to
0.7 percent of GDP.
• After the first year, any second (or subsequent) year payments would
depend on the path of the unemployment rate.


Macroeconomics IS HARD!

Economics in the times of COVID-19, there is already a book. I learnt about it from Tim Taylor’s blogpost. I have not read the book, but will soon.

The NYT, two weeks ago, on the scale of the problem facing policymakers.


India: Links for 6th January, 2020

It’s the first Monday of the year, and therefore the five articles today will be about the year gone by, the decade gone by, the year to come and – you guessed it – the decade to come. All, of course, focused on India.


  1. “Hope springs eternal in the human breast, which perhaps explains why some outrageously hopeful investors took India’s markets to greater heights in 2019, despite economic indicators getting progressively worse. The Nifty 500 index rose 7.7% last year, a marked improvement over 2018, when the index had fallen 3.4%.”
    Economics professors, such as yours truly, are wont to clear their throats and look away when asked by students about the disconnect between macroeconomic indicators and stock market indices. Mobis Philipose in the Livemint to the rescue.
  2. “Coming out of the current crisis is priority. But without trying to pick winners, India should also be getting its financial industry ready for the opportunities the 2020s may have in store.”
    A nice blend of the past, the present, and how to be ready (from a financial markets viewpoint) of what is hopefully to come in the future, by Andy Mukherjee.
  3. I’m not a fan of lists such as these. Specifically, in this case, the last three or four entries simply exist to take the list to 20. It is striking however, to see the obvious contradictions in the list itself. 20 things expected to happen in 2020, for what it’s worth.
  4. “But consumption growth in 2019-20 has collapsed. In the first six months of this year, consumption growth has been just 7% (in nominal terms, without adjusting for inflation). It is the first time since 2004-05 that consumption growth has been in single digits.”
    Vivek Kaul in the Deccan Herald, for the pessimists…
  5. “In the 2019 Independence Day speech made by Prime Minister Narendra Modi, a key announcement was investment of Rs. 100 lakh crore in infrastructure over the next five years.This was also one of the promises made in the Bharatiya Janata Party (BJP) manifesto for the Lok Sabha elections held in April and May 2019.
    Following the announcement by the PM, a task force was constituted within the Finance Ministry to create a roadmap for this investment.
    Officials from the Departments of Economic Affairs and Expenditure in the Finance Ministry and NITI Aayog were part of this task force.
    The report of this body was presented on 31 December 2019 by Finance Minister Nirmala Sitharaman.”
    While Aashish Chandorkar with how the NIP might play out, for the optimists.

India: Links for 23rd December, 2019

  1. “When it comes to data centre storage though, India lags behind not just the developed world but even Asia-Pacific. With roughly 40 million less Internet users, Europe has more than 12 times its capacity to store data — 8,600 MW, compared to India’s 700 MW. And while India comprises 25% of Asia-Pacific’s Internet users, in 2017, it accounted for only 8.6% of its data centre growth, as per a 2018 research of the Data Center Advisory Group.”
    A nice article from the Livemint about how this is set to change.
  2. A short write-up from the Business Standard on reforms to the GST. The specifics do not matter (to me, that is) as the fact that this article needed to be written at all.
  3. “The remedial measures have to be a combination of factors: capital infusion, capacity building on the supply side to resolve the unproductive assets, incentives for new entrants and tweaks in the regulatory framework. We need to wipe the slate clean and look ahead. The need of the hour is also to take some hard decisions impacting the current stakeholders. Remember, this situation is akin to the housing-led credit crisis in the US, where a turnaround was led by foreclosed properties and those under development.”
    On revitalizing the real estate sector in our country. It is going to be a long, hard drive, but one that needs to be undertaken as soon as possible. This is necessary reading for anybody who would like to understand India’s economy today!
  4. Niranjan Rajadhakshya, about nine months ago, on the need (“maybe?” he said then) for Operation Twist.
    “One option right now is to borrow a trick from the US Federal Reserve—Operation Twist, named after the dancing style that was all the rage in the years after World War II. There have been two famous instances when the US central bank “twisted” a steep yield curve through clever money market operations, first in 1961 and then in 2011. In each case, the Fed changed the relative amounts of short-term and long-term securities in the market. How? It sold the short-term treasuries it had and used the proceeds to buy long-term securities. The result was that short-term interest rates went up while long-term interest rates came down. The yield curve flattened.”
  5. And we went ahead and did it. However
    “Yet it is far from clear that the RBI’s goal will be achieved. Certainly, there might be some flattening of the yield curve. But it is not clear that the amounts being discussed are sufficient. The response of the market for short-term bonds is also being questioned. The sale of the shorter-tenor bonds might well blow up yields in that segment, according to some market participants; on the other hand, liquidity at that end is so ample that there might be an effective cap on yields. The essential problem in the Indian bond market is that the country has, in spite of an apparently manageable debt-to-GDP ratio, entered a state of effective fiscal dominance. “